Turbulence ahead The future of general insurance
General insurance, it will surprise no one to hear, is a risk-averse business. The resulting lag in innovation has led to a growing gap between customer expectations and insurers’ ability to fulfill them. The industry is now ripe for disruption. In the report Deloitte developed with The Forum, we made a bold prediction about insurance: • While retail banking will experience the most imminent effect of disruption, the greatest impact of disruption is likely to be felt in the insurance sector. Compared with other financial services, the future for general insurance is more uncertain because it’s being shaped by forces inside and outside the industry. Within insurance, 2016 is shaping up as the inflection point for “InsurTech.” Many new entrants have emerged, from nextgeneration distribution intermediaries to peer-to-peer insurers to reinsurance platforms. Each exploits severe friction points among customers. Global insurers and brokerages have launched innovation programs and become one of InsurTech’s most active investors. Outside the industry, transformative forces like self-driving cars and the sharing economy have made shocking progress in the past year. They will change the way property is owned and used. And then there are enabling innovations such as big data, machine learning, and distributed ledger technologies, which offer new ways for insurers to transcend their operations. All are poised to change how insurance is structured, consumed, and provisioned in the future. In this paper, we explore how these emerging transformative forces inside and outside of the insurance industry may transform the future market landscape. In the first section “Implications of transformative forces,” we discuss six potential implications of these forces on the insurance industry, some of which are complimentary while others are contradictory to one another. Then in the following section “Scenarios for the future,” we will examine how these implications may converge to create four plausible versions of the future and outline potential strategies that may prevail in those scenarios. If you are not as familiar with the transformative forces outlined in Figure 1 and would like to take a closer look, please refer to the detailed section on “Forces transforming the insurance industry” on Page 23.
What are incumbent firms to make of these emerging forces? Several, often competing, outcomes seem likely. Commercial entities might assume or represent risks that are traditionally personal lines coverages. Insured risks might be broken down by configuration and duration. Personalized risk pricing could lead to unpooling of risk across customers. Meanwhile, safer cars and properties could reduce and homogenize risks, making insurance a commodity. On the other hand, the separation of origination and underwriting could bring consumers more innovative, specialized, and competitive insurance offerings. Some of these implications may be complimentary to one another, while others may be contradictory depending on how incumbents and innovative new entrants respond to the emerging transformative forces.